Umbrella Regulations Checklist: What can agencies be doing ahead of the legislation changes?

The announced government’s decision to shift payment responsibility to employment businesses when placing workers through Umbrella companies is set to take effect from April 2026. In addition, the Employment Rights Bill will bring Umbrella companies under the legal definition of an employment business, paving the way for future regulation. These changes represent one of the most significant regulatory shifts the sector has seen, specifically for recruitment agencies.

As we wait for further updates ahead of the new legislation changes in 2026, the move forms part of the government’s wider initiative to tackle non-compliance in the umbrella company sector. By shifting PAYE liability, recruitment agencies will be encouraged to take greater responsibility, helping to curb tax avoidance while safeguarding workers’ rights.

As part of Workwell’s resource collection and our partnership with SafeRec, we have broken down HMRC’s latest guidance into several practical steps, outlined in our checklist below, to help you prepare for, and adapt to, this legislative shift.

Meet Your Current Compliance Obligations

If you are a recruitment agency or Umbrella company, it’s important that you understand the key compliance responsibilities. They are to:

• Submit the quarterly employment intermediary reports for all placed workers where you do not operate PAYE, including those employed by umbrella companies.
• Operate PAYE for workers employed by an overseas umbrella company with no UK presence.
• Follow the VAT requirements for self-billing arrangements.
• Pay tax and National Insurance contributions on any incentives your employees receive from umbrella companies.
• Include any financial incentives from umbrella companies in your taxable income.
• Ensure umbrella companies carry out proper right-to-work checks.
• Avoid accepting or offering improper gifts or incentives.

Support and Inform Workers

Workers can find Umbrella company arrangements confusing and working for less established and non-compliant companies can cause a huge impact. Providing clear explanations and information reduces queries and builds trust. We encourage recruitment agencies to:

• Explain how Umbrella employment works and give them all alternative employment arrangements so they can decide if working through an umbrella company is right for them. A good umbrella company will supply this information to agencies.
• Clarify differences between assignment rates and gross pay
• Be transparent in job ads and discussions about pay
• Provide Key Information Documents (KIDs) when workers register, before any work-finding starts.
• Clarity on payslips. Compliant technology producing clear rates can help both the agency and the worker. This helps with compliance and a commitment to integrity across the supply chain.

Carry out Robust Due Diligence

To reduce your risk, we recommend the following steps:

• Diligently check the Umbrella companies you are working with are:
• VAT-registered and charging VAT appropriately
• Registered with Companies House
• Holding valid insurance, including employer’s liability
• Verify their claimed accreditation
• Find out if the Umbrella company is outsourcing its employer responsibilities to a third party, and do due diligence on that business down the supply chain
• Request payslips and reconciliation statements from the work to ensure PAYE is being operated, that the assignment rate matches the amount you have sent to the umbrella company and for unexplained deductions, tax avoidance or underpayment.
• Check that the name of the Umbrella company corresponds with the bank details provided by the company.
• Be alert for signs of mini umbrella company fraud, such as frequent changes to employers’ names or PAYE references on payslips and key information documents.
• Follow certified Umbrella directories to ensure ethical payroll & verified tax payments.

Strengthen your Supply Chain

Another way to reduce compliance is to simplify your supply chain.

• Train your staff to help them identify non-compliance.
• Set out the clear procedures on how to report suspected non-compliance.
• If you think that an Umbrella company is operating non-compliantly, report them to their accreditation body.

Workwell can give you the correct contacts to report these.

The Risks of Non-Compliance

What is the impact? There can be serious consequences for your agency if you’re involved in non-compliant supply chains:

• HMRC may prosecute for failing to prevent criminal facilitation of tax evasion.
• HMRC can deny your right to recover VAT input tax and issue penalties.
• You could face reputational damage, which could impact relationships with clients and workers, and could negatively affect contracts and revenues.
• The Employment Agency Standards Inspectorate can close businesses and ban directors and others from running an employment business.
• The Gangmasters and Labour Abuse Authority (GLAA) could penalise you for criminal offences.

By taking these steps, recruitment agencies can not only manage the change in legislation and avoid penalties but also improve overall business resilience and efficiency.

Latest Update

The FCSA recently met with HMRC and HM Treasury to discuss progress on the proposed regulation of Umbrella companies.

The joint and several liability approach model is currently under active consideration. Under this proposal:

• The Employer’s Reference Number would remain with the Umbrella company.
• The top of the labour supply chain (i.e., the lead agency or end-client if no agency is involved) would hold strict liability for any tax shortfall.
• Crucially, this would be a strict liability, with no statutory excuse.

Please note that this is not yet confirmed policy and awaits sign-off from the Exchequer Secretary.

For more information and the latest updates, please visit Workwell Contractors Solutions, where we have other resources on the topic of the upcoming Umbrella regulations.

For a more consultative conversation, contact us today.